International marketing – the issues 617
Other possibilities include ‘cost plus’ pric-
ing, which means including a proportion such
as 10 per cent for overheads, including admin-
istration. Transfer pricing could therefore pro-
vide a means for a company to close down a
plant abroad by showing how unprofitable it
was by simply sending imports with a high
transfer price. Alternatively, a plant in a low
labour cost country with a very favourable tax
regime could be seen as even more profitable if
benefiting from low transfer prices from the
parent company organization. Taxation and
politics are important factors in this highly
sensitive area of operations.
Commercial risk
The critical factor here is the uncertainty as to
whether the company’s goods will prove ulti-
mately acceptable to the foreign consumer.
However, even small companies are aware
today of prevailing international industrial
standards for technical equipment, as there are
few national markets left. In the pursuit of
critical mass and the need for economies of
scale in production, domestic markets are
rarely large enough to satisfy customers. Con-
sequently, producers have sought every oppor-
tunity to standardize their products and make
them available to an ever-larger number of
markets. The BSI scheme Technical Help for
Exporters was created to provide British manu-
facturers with information on national product
standards worldwide. However, even if manu-
factured to acceptable national standards, there
is still the risk that the goods may yet be found
to be unacceptable to consumers in the target
market, perhaps because of price, design, lack
of state-of-the-art technology, inappropriate
brand name or inability to provide the package
of benefits, including service which customers,
particularly in Western developed markets,
have come to expect.
The risks of transportation, transhipment,
pilferage, damage and loss are risks against
which the supplier may obtain insurance, but
increasingly this is only available at a high price
and against demands that the exporter gives
the insurance company all its export business
and not just the risky part of the export
portfolio or, alternatively, accept perhaps only
30 per cent cover. Insurers are providing less of
a service nowadays and are dictating terms,
pointing to the bad debt provisions of the major
clearing banks and state export insurance agen-
cies. To some degree, improved export packing
and product packaging have reduced some of
this risk, but certain regions of the world are
more risky in this sense than others.
There is an important aspect often over-
looked as to the ability of the buyer to pay for
the goods ordered. Frequently, the creditwor-
thiness of the nation is confused with the
creditworthiness of the individual buyer. This
is reflected in insurance practice, where there is
often found to be a mistaken assumption that it
is less important to have insurance cover for an
importer in North America as opposed to South
America. This confuses the solvency of the
nation with the solvency of an industrial buyer,
to say nothing about actual intent to pay.
Financial status reports on a buyer should
always be obtained whenever there is a shadow
of doubt. Insurance is available to an exporter,
but the cost increases with the exposure to risk
and so the exporter should decide whether to
proceed knowing fully the risk and whether he
or the buyer is to accept the costs of insurance
cover.
Agents are the most common form of
going international, but here there may be a
conflict of interest where an agent is sharing his
time over a portfolio of products for which he
receives differential rates of commission. Each
supplier is just one of many and there may well
be loss of central focus for the brand or product
in question. There is an important experiential
factor at play here. In a study of marketing
know-how transfer, Simonin (1999) found that
the effects of cultural distance, asset specificity
and prior experience were moderated respec-
tively by the firm’s level of collaborative experi-
ence, the duration of the alliance and the firm’s
size.